Merger Integration: Delivering on the Promise - Booz Allen Hamilton

<strong>Merger</strong> <strong>Integration</strong>:
<strong>Delivering</strong> on the
Promise
A Series of Viewpoints on <strong>Merger</strong>s, Acquisitions, and <strong>Integration</strong>

Executive Summary
From airlines to automobiles to advertising, the urge to merge has escalated steadily over the
past decade. In 2000 alone there were 9,472 merger and acquisition transactions in the United
States — a new record. Although this rush to the altar may have been grounded in solid synergistic
potential, all too many of these marriages quickly faltered. Booz•Allen & Hamilton recently
conducted a study of deals that closed in 1997 and 1998 and discovered that 53 percent of the
deals had failed to deliver their expected results.
Although senior executives devote exhaustive hours to striking the right deal, it is merely
the beginning of the long and tortuous merger integration process. In fact, structuring a deal is
relatively easy; implementing one is nothing short of heroic. As an executive presiding over a
newly merged company, you are inundated with competing priorities and demands. But the most
important questions before you are these:
• How do you deliver on the value you promised shareholders and investors while
simultaneously “keeping the wheels on the business”?
• In the wake of a merger, how do you successfully integrate operations while maintaining
your focus on customers?
Although no one-size-fits-all formula can apply to every company’s unique situation, in our
experience four principles are the key to success in merger integration. They all start with the
CEO — before the deal closes.
• Communicate a shared vision for value creation.
• Seize defining moments to make explicit choices and trade-offs.
• Simultaneously execute against competing critical imperatives.
• Employ a rigorous integration planning process.
These four key principles will dictate a series of transformational priorities that will, in turn,
shape the ongoing game plan and the categorization of day one versus longer-term tasks. This is an
iterative process. If senior management sticks to it with rigor and clearly communicates evolving
expectations, there is a strong likelihood that they can realize the promise they identified on the
day of the merger announcement and keep all their constituencies — customers, shareholders,
employees, and others — more than satisfied. This Viewpoint outlines Booz•Allen’s approach to
achieving success in merger integration.
©2001 Booz•Allen & Hamilton Inc.

<strong>Merger</strong> <strong>Integration</strong>:
<strong>Delivering</strong> on the Promise
A Viewpoint by:
Gerry Adolph
Ian Buchanan
Jennifer Hornery
Bill Jackson
John Jones
Torbjorn Kihlstedt
Gary Neilson
Harry Quarls
Most mergers fail. Though this reality is uncomfortable,
it is an indisputable fact. By whatever measure you
choose — stock price, revenues, earnings, return on
equity — most deals fall short of expectations. Somewhere between
the concept of the merger and its execution, the promise fades.
Synergies evaporate. Savings vanish. Cultures clash. And the CEO
discovers the door.
But why? Surely, no one enters into a merger intending to
lose shareholder value. In a few cases, the merger itself was simply
ill conceived: the promise was never really there to realize. In most
deals, however, it is ambiguous leadership and poor execution that
prevent companies from capturing the full value of a merger.
Although senior executives devote exhaustive hours to striking the
right deal, it is merely the beginning of the long and tortuous merger
integration process. In fact, structuring a deal is relatively easy;
implementing one is nothing short of heroic.

Although no one-size-fitsall
formula can apply to every
company’s unique situation, in
our experience four principles are
the key to success in merger integration.
They all start with the
CEO — before the deal closes.
1. Communicate a shared vision
for value creation.
2. Seize defining moments
to make explicit choices and
trade-offs.
3. Simultaneously execute
against competing critical
imperatives.
4. Employ a rigorous
integration planning process.
This Viewpoint outlines
Booz •Allen’s approach to achieving
success in merger integration.
A Marriage Made in
Purgatory
From airlines to automobiles
to advertising,
the urge to merge has
escalated steadily over the past
decade. In 2000 alone there were
9,472 merger and acquisition
(M&A) transactions in the
United States — a new record. 1
Worldwide, mergers and
acquisitions through July 20,
2000 were valued at $1.7 trillion,
an 18 percent year-over-year
increase. 2
Although this rush to the
altar may have been grounded in
solid synergistic potential, all too
many of these marriages quickly
faltered. Booz •Allen & Hamilton
recently conducted a study of
deals that closed in 1997 and
1998 and discovered that 53 percent
of the deals had failed to
“One of the best decisions
we made in the merger integration
process was to maintain our focus
on customer service, even when
it meant slowing down the rush
to exploit synergies. If we kept our
customers satisfied through the
integration process, we reasoned,
it was worth delaying the savings
for a couple months.”
— CEO, medical products
and services company
deliver their expected results. (To
assess their post-merger performance
fairly and accurately, we
intentionally restricted our sample
to those deals that had closed
two or more years ago.)
Further analysis revealed
that the more strategic the rationale
for the merger, the greater
the likelihood of failure (see
Exhibit 1). Of those combinations
that were simply intended
to establish or exploit scale
effects, 55 percent achieved their
objectives. However, of those
Exhibit 1. Extent to Which Deals Met Expectations Two Years After the <strong>Merger</strong> Close
Combined: 55% Met Expectations
Combined: 32% Met Expectations
35
Number
of Deals
30
25
20
15
Strategic mergers
are more likely to fail
10
5
0
Achieve Scale
Grow Existing Business Add Capabilities New Business Model
Total Deals
Met Expectations
Increasingly Strategic Rationale
Source: Booz • Allen & Hamilton
1
<strong>Merger</strong>stat.
2
Thomson Financial Securities Data.
2

mergers with more strategic
motivations (e.g., move
upstream or downstream in the
value chain, add capabilities,
develop a new business model),
only 32 percent realized their
vision and objectives.
The widely prevalent
“merger of equals” was also
shown to be more failure prone.
According to our analysis, mergers
failed almost twice as often
when the participants were of
comparable size. Although most
of the lessons in this Viewpoint
are applicable to all deals, we
will focus primarily on the issues
attending large-scale mergers of
comparably sized companies.
Integrating companies is
a mammoth undertaking. The
tactical issues are tremendous.
Indeed, when companies
explained why they had not met
expectations, more than two
thirds cited execution-related
reasons — such as loss of key
staff, poor due diligence, and
delays in communication. Only
32 percent attributed their failure
to meet expectations to more
strategic concerns such as poor
fit or an overly ambitious vision.
However, whether tactical
or strategic, problems in merger
performance land on the same
doorstep: they are attributed to
poor leadership. That is why so
many CEOs lose their jobs within
two years of the close of an
unsuccessful large-scale merger.
According to our research,
among companies that did not
achieve their targets, 42 percent
Exhibit 2. Poor <strong>Merger</strong> Performance Leads to CEO Departures
<strong>Merger</strong>s That Met Expectations
Source: Booz • Allen & Hamilton
saw the CEO depart within two
years. That compares with a 16
percent departure rate among the
CEOs of successful mergers (see
Exhibit 2).
As an executive presiding
over a newly merged company,
you are inundated with competing
priorities and demands. But
the most important questions
before you are these:
• How do you deliver on the
value you promised shareholders
and investors while simultaneously
“keeping the wheels on
the business”?
• In the wake of a merger, how
do you successfully integrate
operations while maintaining
your focus on customers?
84% CEO Remained 58%
After Two Years
It’s important to start the
merger integration process as soon
as possible. To be successful, you
must sow the seeds of integration
<strong>Merger</strong>s That Did Not
Meet Expectations
16% CEO Departed
42%
within Two Years
well before the deal closes. That
means making the following
decisions early:
• How will we create value?
• How will we approach and
structure the merger?
• How will we lead and manage
the integration?
• What is our people strategy
for the transition to the merged
organization?
The unique characteristics
of the deal will dictate the particular
choices you make in each
area; there is no one-size-fits-all
recipe for successful merger
integration. Comprehensive due
diligence will inform these early
decisions, which will then become
the foundation of a rigorous integration
planning process. The
result: both organizations will be
ready to integrate immediately
after the merger’s close.
3

The Four Principles
of Success
Our experience helping
hundreds of companies
throughout the world
go through the merger integration
process has distilled four
key principles of success, all of
which start with the CEO (see
Exhibit 3).
PRINCIPLE 1:
COMMUNICATE A
SHARED VISION FOR
VALUE CREATION
Exhibit 3. The CEO’s Four Principles
Source: Booz • Allen & Hamilton
Communicate a shared vision
for value creation
Seize defining moments to make
explicit choices and trade-offs
Simultaneously execute against
competing critical imperatives
Employ a rigorous
integration planning process
<strong>Merger</strong> <strong>Integration</strong> Success
We have no doubt that every
company goes into a merger with
a one- or two-sentence description
of what the deal is all about.
And we have no doubt that a
lot of time and effort goes into
crafting that statement. However,
we suggest that the senior leadership
team dig even deeper,
beyond the immediate rationale
to the real and sustainable sources
of value they hope to unleash in
the merger, and then be aggressive
and open in quantifying and
communicating those sources of
value to vested parties — employees,
customers, and shareholders.
A true shared vision for
value creation:
• Specifically identifies sources
of value
• Sets high aspirations for financial
growth and synergy
• Is shared by both companies’
senior teams
• Is communicated broadly
and constantly
This vision is actionable. It
spells out the strategic rationale
for the merger and the goals for
what the merged company can
become. It gives the new leadership
team marching orders and
allows the organization as a
whole to understand the immediate
priorities in integrating
systems, people, and processes.
It sets stretch targets for financial
growth and synergy capture (see
Exhibit 4) so that the promise of
the merger can be fully realized.
“A merger is like a marriage —
it’s all about people and their
ability to work together in a way
that benefits the union. The basis
for success includes a common
understanding and assessment
of what both sides bring to the
party, and what the promise of
the union is to be.”
— CEO, global software
developer
Moreover, the vision is
truly shared — a notion frequently
embraced in public statements
but all too often disregarded
in practice. Both companies’
senior teams need to understand
and support the vision of what
the merged company is trying to
accomplish in order to realize
those goals.
It is imperative that the
companies be forthright and
consistent in their communication
of this shared vision for
value creation and then “walk
the talk.” The most successful
4

Exhibit 4. The Vision Sets Stretch Financial and Synergy Targets
Minimum Requirements
Stretch Goals for a Successful <strong>Merger</strong>
Ensure Survival by
Improving Economics
Grow Existing Businesses
Build New Business Model
New Industry Model
• Rationalize costs
• Capture scale economics
+
• Build market-leading positions
in existing business lines
+
• Leverage existing capabilities
to change the way you do
business
+
• Use the merged company
to redefine the industry or
to define new opportunities
Increasing Aspirations
Source: Booz • Allen & Hamilton
merger integration efforts leverage
multiple communication
channels and do not underestimate
the power of the daily
dialogue between supervisor and
employee. Constant and updated
communications serve as a
reality check for employees as
they make daily decisions.
Finally, the organization
needs to be equipped with the
means to translate the words of
the vision into deeds to effect a
transition and successfully integrate
people and assets. For
example, we had a client whose
vision was to use mergers and
acquisitions to become the producer
of choice in the premium
beverage segment. The company
translated that vision into action
by developing a three-pronged
plan: 1) build a full product portfolio
for its distributors, reducing
the distributors’ dependence on
other suppliers; 2) establish the
scale necessary to capture benefit
along the full value chain; and
3) wield sufficient clout to alter
industry relationships with
distributors and retailers.
That clearly articulated
rationale had direct implications
for the client’s merger planning
and execution processes. It called
for a rationalization of the supplier
base, the development of
new relationship management
capabilities, and the formation of
processes to capture the “best of
the best.” It helped senior management
in designing the “new”
organization, establishing HR
policies, and outlining the operations
footprint. It was a clear,
actionable vision.
PRINCIPLE 2:
SEIZE DEFINING
MOMENTS TO MAKE
EXPLICIT CHOICES
AND TRADE-OFFS
Successful merger integration
hinges on the senior leadership
team’s recognizing key moments
of truth in the merger process
and acting decisively. They must
consciously identify and evaluate
all options and make explicit
choices and trade-offs, recognizing
that some choices will be
very clear (given the vision and
the characteristics of the deal),
while others will require great
conviction and fortitude.
As we indicated in the
introduction, four fundamental
questions should drive the character
and pace of any integration
effort (see Exhibit 5).
First, you need to ask the
fundamental question “How will
we create value?” There will
almost certainly be profound
trade-offs when you address this
question. What will you need to
preserve to realize the potential
of the deal? And what are you
prepared to relinquish in return?
Where should you redesign,
create, adopt, or eliminate — and
should you make these decisions
by segment, organization,
process, or geography? What are
the immediate priorities and
what can wait?
The second fundamental
question concerns how you
approach and structure the
merger. Will you absorb, integrate,
create, or attach? Will you
take a “best of both” approach
5

Exhibit 5. Fundamental Questions Drive <strong>Integration</strong>
How will we
create value?
• What must we preserve to realize the potential of this deal? What are we
prepared to give up?
• Where do we redesign, create, adopt, or eliminate? (By segment, organization,
process, or geography?)
• Where do we need to compete as an institution?
• What must be integrated immediately? What can wait?
Vision
How will we
approach this
merger?
• Do we absorb, integrate, create, or attach?
• Will we apply a “best of both” philosophy, or is there a preference for either
company’s model?
• Will this philosophy apply to the senior team selection?
How will
this merger
be led?
• What role should the CEO play?
• How will we run the business while simultaneously maintaining focus on the
integration and its synergies?
• How aggressive do we want to be?
• How should teams be formed? How much line involvement?
What people
strategy is
required?
• What is the decision-making model? (Top-down, bottom-up?)
• What degree of cultural change is required to make this work?
• How do we identify, select, and retain a superior team?
• How can we ensure that we treat people fairly?
Source: Booz • Allen & Hamilton
when it comes to adopting the
companies’ practices, or will one
company clearly dominate the
other? Finally, will this philosophy
apply to your selection of
the senior team? The nature and
strategic intent of the deal will
lead to some specific choices.
For example, if the deal is a
“bolt-on,” in which one company
is simply acquiring another’s
revenues at a marginal fixed cost,
then the integration approach is
largely decided: absorb. But most
deals of any size — our focus in
this Viewpoint — involve a more
complex set of competing issues.
Third, you need to ask
yourself how the integration
should be led. Should the CEO
play a prominent role? How
will you keep current businesses
running smoothly while integrating
new assets and realizing
synergies? How aggressive do
you want to be in exploiting new
value? Once again, the nature
of the deal and its impact on
industry structure will lead to
certain choices. As one CEO
overseeing a mega-merger in his
industry observed, “You have to
be willing to bet the firm, and
drive every aspect of the integration
personally.”
Finally, what people strategy
will be required? Will you use a
top-down or bottom-up decisionmaking
model? How will you
integrate different cultures? How
will you retain top performers
while treating everyone with fairness
and respect?
Some of these choices will
be obvious given the nature of
the deal. For example, in our
experience clients who paid large
premiums approach merger integration
very aggressively. To
recover their investment, they
target early wins and exploit
synergies immediately. A hostile
6

takeover situation requires an
early emphasis on people strategy.
Such companies need to retain
key talent and ensure knowledge
capture. A high-profile deal with
some market skepticism will
require the CEO to play a visible
role in the integration effort. And,
depending on the sources of value
you have identified, these will
necessarily be given the highest
priority as you focus resources
on creating value post-merger.
As Exhibit 6 highlights,
each choice involves a trade-off.
Whether it concerns the integration
approach, the desired
culture, or the role of the CEO,
each choice is made from a
range of options. In exploiting
synergies, you can focus simply
on reducing existing costs or you
can strive to create new primary
demand. In developing the new
organization, you can choose one
model and jettison the other —
or clean the slate entirely. In
retaining people you can adopt
a passive approach or take a
more active stand with targeted
individuals. It’s a whole new ball
game, and you get to establish
the rules… all at once… in
real time.
It’s in these CEO-level
decisions that the future success
of the merger lies. If you can
pick your spot in each of these
areas and establish a stake before
the merger even closes, you’ve
gone a long way toward ensuring
the effectiveness of your postmerger
integration efforts.
Exhibit 6. Each Choice Entails a Trade-Off
Specific Choices and Trade-Offs
How will we
create value?
Source of Synergies
Cost Reduction
Selected Redesign
True Synergy Potential
Stakeholder Concessions
Targeted, Measured
Generous
How will we
approach this
merger?
<strong>Integration</strong> Approach
New Organization
Absorption
Choose One of Two
Best of Both
Harmonize
Transform
Clean Slate
How will
this merger
be led?
Synergy Prosecution
Preclose Planning
Conservative
Conservative, Limited
Stretch, Fast-Paced
Aggressive, Maximize Planning
Decision-Making Involvement
Broad Involvement, Decentralized
Programmatic, Centralized
CEO Role
Selected Delegation
<strong>Integration</strong> Champion
What people
strategy is
required?
Leadership and Employee Selection
Desired Culture
Acquiring Team Dominates
Emergent
Allow One to Dominate
Best Team
Craft New Culture
Retention
Passive, Selective
Active, Targeted
Source: Booz • Allen & Hamilton
7

PRINCIPLE 3:
SIMULTANEOUSLY
EXECUTE AGAINST
COMPETING CRITICAL
IMPERATIVES
Companies need to balance
several critical imperatives
simultaneously as they map out
and engage in the merger integration
process (see Exhibit 7).
Translate the Shared Vision
As we mentioned before,
the CEO’s vision must be actionable.
The organization must be
equipped with the means to
translate mere words into deeds
to effect a transition and successfully
integrate people and assets.
The balancing act here is to
provide a road map clear enough
to allow those implementing the
vision to know specifically what
they need to do — while not
smothering the energy and
creativity that it takes to realize
the prize (that is, deliver on
the commitments made at the
time of the announcement).
Create One Company
The challenge of creating one
company from two formerly
independent — and quite often
competitive — organizations
looms large. Those leading the
new organization must quickly
move beyond rhetoric to truly
combine the two companies and
create a single, bigger, and better
competitor. The pitfalls are
numerous (see Exhibit 8), but
the opportunities to create new
value are even more prolific.
Exhibit 7. Imperatives for Successful <strong>Integration</strong>
Stable
Operations
Source: Booz • Allen & Hamilton
Close
Value
Capture
Build Stakeholder Enthusiasm
In the wake of a merger
announcement, CEOs and their
senior managers must direct their
focus not only within but also
outside the organization and rally
the enthusiasm of the various
stakeholders that the new company
will need to succeed. Good
intentions do not always translate
into good communication, which
is unfortunate, since it is critical
that key stakeholders — be they
shareholders, customers, employees,
suppliers, or regulators —
fully buy in to the potential of
a merger.
Everything communicates,
not just press releases and official
bulletins. You send a clear
message to customers, for example,
when you increase prices in
the wake of a merger or cause
customers to suffer service
Translate
Vision
Successful
<strong>Integration</strong>
Energized
Team
One
Company
Stakeholder
Enthusiasm
disruptions. What to say, to
whom, when, and by whom are
all critical ongoing decisions
that need to be made quickly
and clearly as part of an overall
communications strategy that
balances conflicting interests
and messages.
It is tempting to tell everyone
what they want to hear, but
rarely, if ever, is that a feasible
or realistic goal. The merger will,
necessarily, create winners and
losers among your various constituencies.
In communicating
with each of them, you should
emphasize as honestly as possible
what’s in it for them — along
with the value proposition the
newly combined company offers.
For those who stand to benefit,
regularly demonstrate progress;
for those who will be negatively
affected by the merger, mitigate
8

Exhibit 8. Merging Two Companies: The Pitfalls and Opportunities
Content
Culture
Pitfall
• Focusing on combining operations instead of
capturing synergies or best practices
• Relying too heavily on naturally occurring synergies
• Thinking of “organization” as purely “structure”
• Worrying about culture comparisons between
the two organizations
• Assuming a single prevailing culture in each organization
Opportunity
• Taking advantage of the merger to implement new strategies,
processes, roles, and responsibilities
• Taking advantage of external windows of opportunity
(e.g., customers, partners, financial)
• Building a culture that is appropriately different from that of
either predecessor
Change
• Failing to engage the whole organization
• Stopping short of significant change
• Leveraging people’s expectation of significant change to
drive major improvements
Leadership
• Reinforcing the status quo
• Letting intercompany equity overshadow finding
the best people
• Setting a new direction
Execution
• Failing to achieve targeted savings and timing
• Disrupting the business because of poor integration
• Using due diligence and the preclose period to plan the
integration in detail
• Deploying sufficient high-quality resources
• Establishing an organizational structure to monitor and
drive progress
Source: Booz • Allen & Hamilton
fears. Focus first on those stakeholders,
particularly customers,
who are most at risk.
One Australia-based building
products company we spoke
with started managing its stakeholders
even before it identified
a merger partner. The CEO
pursued discussions with industry
peers while simultaneously
preparing the ground with
his board and shareholders by
educating them on the underlying
forces affecting the company
and its growth options. This CEO
saw this exercise as “earning the
right to do a deal.”
Booz •Allen Client Case Study: Building Stakeholder Enthusiasm
Client Situation
On the heels of a competitor’s failed acquisition attempt, our client entered
tense negotiations with the target, a consumer and health products company.
Actions Taken
A forceful and comprehensive public relations campaign was waged to
convince stakeholders of the merits of the deal:
• An aggressive communications program was aimed at institutional
investors and the board of the target company, stressing the merits
of the deal compared with those offered by the alternative suitor.
• A clear, simple message surrounded all merger communications.
• The company put an emphasis on the speed of closing.
Results
The company received positive press coverage of the deal merits and closed
the acquisition expeditiously.
9

Unleash an Energized Team
Possibly the greatest challenge in
merger integration is building an
energized and enthusiastic team
comprising the best of both
organizations. It is the nature of
any acquired company to resist
directives, and employees at both
companies will be consumed
with questions about their individual
futures in the wake of a
merger announcement. Asking
them to enlist in your shared
vision without first allaying their
concerns about where they fit
into the new organization is
an exercise in futility.
Buy-in is a cascading
process, so the obvious starting
point is the leadership team. The
CEO’s selection of his or her
senior officers will set the tone
for the new organization’s people
strategy. Of course, whether people
stay is the result of countless
decisions made at every level.
How positions are filled is as
important as who fills them. How
positions are “unfilled” is
arguably even more important.
We’ve seen client situations in
which the casual assigning of
office space brings entire departments
to a halt.
True buy-in comes when
employees understand clearly
what is being asked of them and
what opportunities for personal
growth await them if they say yes.
What are the career prospects?
What are the financial upsides?
In short, “What’s in it for me?”
Capture the Value
Through Synergies
There will be significant pressure
on the CEO and senior management
to “realize the prize” in the
first year or two. After the deal is
paid for, these executives then
need to justify it by delivering
continuing upside. This is particularly
difficult to do while you
are trying to avoid a tide of
employee departures and make
sure your customer orders are
filled. The trick is to identify the
appropriate combination of
short- and long-term synergies
that will give external stakeholders
faith in your promise of the
prize, but that will not sap the
organization of energy, thereby
sabotaging the promise.
From our research and
experience, most stakeholders
grant you about six to 12 months
to deliver short-term synergies.
Beyond that time, they expect
you to start delivering the
upsides.
So where do you start looking
for this balance of synergies?
First, it is critical to develop a
solid fact base from which to
build. This baseline provides a
starting point and will allow
teams to map the organizations
against one another. Teams
should then be given the task
of looking for creative ways to
improve the way business is
done, getting beyond redundancybased
synergies.
Maintain Stable Operations
In the midst of mounting external
pressures and multiple distractions
and conflicts, it is easy for
senior executives to lose sight of
their primary responsibility: to
keep the wheels on the bus. That
goal is achieved by focusing on
Booz •Allen Client Case Study: Maintaining Stable Operations
Client Situation
Our client in the aerospace and defense industry acquired a company in
a similar line of business for a low premium. It was important to ensure
minimal disruption to business operations given strict quality and timing
requirements on existing key customer contracts.
Actions Taken
It was determined that many sites would ultimately be closed, but the
low acquisition premium meant that the client had time to pursue this
consolidation strategy more gradually. The client decided to implement
consolidation moves over a period of several years after the deal closed.
The CEO also chose to keep the name of the acquired company, and he
personally visited manufacturing sites to address management in an effort
to ease the turmoil of the acquisition and ensure that people felt included
and consulted.
Results
These decisions made for a smooth and successful integration.
10

three primary areas: stability,
organizational control, and problem
resolution (see Exhibit 9).
Both in mergers of equals
and in more straightforward
acquisitions, a host of issues
threaten to bring ongoing operations
to a standstill. The key is to
establish stable interim processes
and controls as well as problem
resolution mechanisms, so that
there are no debilitating interruptions
in service or defections in
staff. Where are the risks to
continued business stability?
What can you do on a contingency
basis to address these
risks and prevent further escalation?
Although integration
decisions about the future-state
organization and processes may
take some time, it is imperative
that you immediately resolve outstanding
issues such as delegations
of authority, payroll, workload
conflicts, and pricing — even if
that involves a temporary solution.
One individual we interviewed,
the CEO of an Australian
conglomerate with extensive
merger and acquisition experience,
recommends appointing risk
management czars to identify
and address threats to continued
business stability. These individuals
should be independent of the
business units and should report
directly to the CEO.
Exhibit 9. Keeping the Wheels on the Bus
Stability
• Defined, stable interim
processes:
– Financial
– Make/deliver
– Selling/pricing/
commitments
– Contracting
– People management
Source: Booz • Allen & Hamilton
Close the Deal
It’s telling that the final imperative
is to close the deal; it only
serves to emphasize the importance
of beginning the post-merger
integration process well before
the deal is done. As the CEO of
the newly combined entity, you
will need to make key decisions
and address critical imperatives
in the period between signing
the agreement and consummating
the deal (see Exhibit 10). And,
in doing so, you will need to
balance the interests of all key
constituents: shareholders, customers,
employees, and regulators,
among others.
Although the initial memorandum
of understanding will
set the broad parameters of the
merger, there is often much room
for last-minute maneuvering.
Organizational
Control
• Who’s my boss?
• Chain of command
• No lost functions,
activities, groups, people,
customers, etc.
• Ability to exercise control
• Not necessarily full
integration
Problem
Resolution
• Identify business
stability risks:
– Customer
– External affairs
– Employee
– Workload conflict
• Resolve or prevent
• Capture and monitor
Different companies approach
these negotiations in various
ways, depending on the unique
set of regulatory, competitive,
and merger-specific issues that
pertain to their particular situation.
The key levers at your
disposal in negotiating final deal
terms will include the deal structure,
regulatory commitments
(e.g., pricing, employment, location
of operations), savings
targets, timing, and the distribution
of risk.
The trick to closing the
deal is to achieve a delicate
balance between aggressively
pursuing the deal consummation
and crossing the line on legalities
(or rupturing the deal altogether).
11

Exhibit 10. Overall <strong>Integration</strong> Approach
Sale Agreement
Preclose Planning and Design
(Define, Organize, and Launch)
• Agree on integration principles and approach
• Set synergy targets
• Establish preclose integration infrastructure
and select participants
• Define integration process and deliverables
• Develop high-level organizational design
• Teams develop first-pass synergy estimates
• Develop detailed organizational design
• Confirm synergy targets through validation
by value creation teams
• Identify low-hanging synergies
• Develop employee transition plan
• Detail people selection process and
severance packages
• Develop implementation plan
• Design endgame and transition organizations
• Develop customer transition plan
Close
<strong>Integration</strong> Implementation
(Guide, Control, and Execute)
• Transfer implementation to line
• Track implementation
• Identify and resolve key issues
• Integrate synergy targets and plans into
normal budget and planning
• Define integration management governance
Leadership Selection (Cascading)
Communication Strategy
Communications Implemented
Due Diligence, Closing the Deal
Manage Acquired Company
Source: Booz • Allen & Hamilton
PRINCIPLE 4:
EMPLOY A RIGOROUS
INTEGRATION
PLANNING PROCESS
By the time it reaches full swing,
the work of post-merger integration
is a massive, multifaceted
campaign involving every function
and business unit along with
personnel at multiple levels. But
the planning process for this
assault starts small and early
with a design team staffed by a
few select participants. As the
merger passes through successive
milestones — legal, regulatory,
financial — the planning effort
gains specificity as more information
is shared. What started
with one design team proceeds
with multiple teams working in
parallel. These teams spawn
subteams that work on specific
initiatives until hundreds of
people are involved in the
merger integration process. As
teams evolve over time, they
tackle the work implied by the
key principles in greater and
greater detail.
The first challenges in the
planning process are to determine
the right team structure and
roles, select the right people for
these roles, and decide to what
degree you will involve line
management. Most integration
efforts require some combination
of design or value creation teams,
task teams, transaction teams —
and a dedicated team to ensure
that the businesses keep running.
Value creation teams are focused
on the future organization and
the way business will be carried
out as well as how to transition
from the current state. Task
teams, in contrast, are almost
solely focused on day one critical
activities to support bringing
the two organizations together as
one. The transaction team understandably
focuses on closing
the deal and is generally staffed
with a cross-section of functional
experts from legal, finance, and
the different businesses.
12

In selecting the right
people for the roles on these
teams, it pays to think about the
different skills required for
each team. A conscious decision
should be made about the ability
of one person to fulfill both a
value creation team and task team
role. This is particularly important
for the support functions of
human resources, finance, and
information technology. The integration
support demand on these
functions is enormous, yet they
also need to be thinking about
building an integrated function to
support the future organization.
The work of these transaction,
task, and value creation
teams is then fed into a central
program or integration coordination
office overseen by a
steering committee of high-level
executives charged with charting
the strategic course of the new
enterprise (see Exhibit 11). All
teams should be staffed with fulltime
stars rather than part-time
understudies, and these individuals
should be given tasks with
specific and tangible objectives.
The CEO and top leadership
should set aggressive but
viable targets with clearly defined
deliverables. In the interests of
speed and credibility with the
Street, the aggressive realization
of synergy targets should be
amply rewarded, and senior
management should encourage as
much sharing and collaboration
as is legally permissible.
But leaders should take
care to temper this zeal with
restraint; otherwise, they risk
burning out their best employees.
We’ve seen clients charge their
high performers with significant
integration duties pre- and postmerger,
without relieving them
of their normal line responsibilities,
resulting in physical and
mental exhaustion and compromised
performance.
Exhibit 11. Separate Value Creation, Task, and Transaction Teams
Steering Team
Value Creation
• Sets strategic direction
• Defines organizational model and governance
Transaction
Design Teams (Business)
• Strategy harmonization
• Tactical plans
• Organizational design
• Process integration
• <strong>Integration</strong> plans
• People and skills plans
Design Teams (Services)
• Function vision
• Organizational design
• Process design
• <strong>Integration</strong> plan
• Capabilities and people plan
<strong>Integration</strong> Coordination
•“Committee of the whole” –
other team leaders
• Support design
Task Teams
• Execute preclosing day tasks and activities
Program Office
• Process design
• Coordination
• Tracking and reporting
• Steering team support
Transaction Team
• Close the deal
Regulatory/Negotiation Teams
• Options/strategy
• Modeling and analysis
• Negotiation approach
Source: Booz • Allen & Hamilton
13

Booz •Allen Client Case Study: Keeping Transaction and Value Creation Teams Separate
Client Situation
Two leaders in the medical products and services industry announced their decision to merge. The companies had
very different operating models and had been pursuing distinctly different strategies.
Actions Taken
The use of integration teams allowed the company to dedicate resources to the merger while keeping the
businesses running.
• Line managers maintained their focus on day-to-day operations.
• Full- and part-time integration teams performed the pre- and post-merger work.
<strong>Integration</strong> teams were set up outside the normal organizational structure to remove them from undue influence.
Results
<strong>Integration</strong> teams were able to produce better solutions to the post-merger problems than line management could
have, because:
• The multidisciplinary approach ensured that all functional voices were heard.
• Teams were often given freedom to review even the sacred cows of the organizations.
• The integration teams had an objective way of determining the best solution for the merger of such
different organizations.
Pulling It All Together
In our experience, the most
successful merger integrations
begin with a clear and
broadly communicated game
plan that addresses each of
the four principles we’ve just
outlined (see Exhibit 12). This
game plan is inspired by the
shared vision articulated at the
time of the merger announcement
and the type of integration
anticipated, whether it is absorption
or a union of equals.
Based on this vision and
approach, the game plan will
need to address the inevitable
organizational issues that will
surface. How will the two
companies work together? Will
new business units be formed?
Where will the central core or
headquarters operation be located
and how will it be staffed? What
services will be outsourced and/or
rationalized? These are among
the explicit choices and tradeoffs
that need to be resolved at
the outset of the merger integration
process.
This ongoing organizational
model will influence to a
great degree how the actual integration
implementation unfolds.
Guided by the principles we’ve
just discussed, companies will
make further rounds of choices
about business and management
processes, organizational structure,
and support systems.
These four key principles
will dictate a series of transformational
priorities that will, in
turn, shape the ongoing game
plan and the categorization of
day one versus longer-term tasks.
This is an iterative process. If
senior management sticks to it
with rigor and clearly communicates
evolving expectations, there
is a strong likelihood that they
can realize the promise they
identified on the day of the merger
announcement and keep all their
constituencies — customers,
shareholders, employees, and
others — more than satisfied.
14

Exhibit 12. <strong>Merger</strong> <strong>Integration</strong> At-a-Glance
Vision and
Strategic
Alignment
Business and Management
Process <strong>Integration</strong>
Type of
<strong>Integration</strong>
Organizational Model
• Full integration?
• Key point connections?
Game Plan
• Absorb
• Integrate
• Attach
Baselining
• Organization/
roles
• Processes
• Financial
• People
Natural
Business
Units
Outsourced
Partners
Central
Core
Shared
Services
• Leadership
• Structure
• Location
Organization
Support Systems
• Incentives
• Information technology
• People selection/processes
• Facilities selection
• Other
Transformation
Priorities
Organization
• Product
management
• R&D
• Etc.
Processes
• Finance
• Planning
• Etc.
Day
One
Longer
Term
Transition Plan and Timing
Source: Booz • Allen & Hamilton
What Booz•Allen Brings
At Booz •Allen we’ve
helped hundreds of
companies across a
broad range of industries through
the mechanics of merger integration.
Indeed, we have worked
with clients to execute some of
the most successful mergers in
recent history.
A major part of the value
we add comes at the front end
of the deal process. We provide
senior counsel and strategic
thinking support to CEOs the
world over. We help them
evaluate trade-offs and establish
imperatives as they contemplate
potential mergers. Once a deal
is signed, we provide analyses
to inform decisions and set priorities
(e.g., market, competitive,
financial). We also provide
“clean room” data collection and
counsel. Given our experience,
we’re cognizant of the likely pitfalls
and skilled in how to avoid
them. And we are acknowledged
experts in organizational design.
Our philosophy is to work
together with the CEO and his
or her senior leadership team to
guide them and their integration
teams in making the merger an
unequivocal success. Our track
record, proven approach, proprietary
Web-enabled tools (see
the e-<strong>Merger</strong>: Expediting PMI
Information Flows sidebar), deep
industry expertise, and flexibility
make us a partner of choice in the
mergers and acquisitions arena.
15

e-<strong>Merger</strong>: Expediting PMI Information Flows
The Internet has an obvious role in post-merger integration (PMI), as it does with most information-intensive processes.
At AESTIX, a Booz•Allen & Hamilton subsidiary, we’ve developed a Web-based tool called e-<strong>Merger</strong> to facilitate preclose
planning and post-merger integration work (see Exhibit 13). The e-<strong>Merger</strong> tool provides baseline, synergy tracking,
and program management functionality and dramatically collapses the time frame for a given merger. It also provides a
common, secure, and ubiquitous platform for the assembly and dissemination of “clean room” documents. Access is
customized to an authorized user’s needs.
e-<strong>Merger</strong> jump-starts the integration planning process, especially for large multinational companies contending with
highly fragmented information, differing accounting standards, and other inconsistencies across geographies. It helps
senior executives and managers make better, faster, and more informed strategic and operational decisions.
Exhibit 13. Elements of the e-<strong>Merger</strong> Tool
Baseline Synergy Tracking Overall PMI Management
Operational Baseline
Financial
Baseline
Headcount
Synergy Tracking
Program Management
Industrial
Logistics
Product Planning /
Product Development
Purchasing
IS / IT
Sales / Finance
HR
Commercial
P&L by Brand
Cash Flow
by Brand
Balance Sheet
by Brand
By Function…
Actuals
• By Function
• By Level
Headcount
Tracking
Financials
(Targets and Actuals)
• P&L
• Cash Flows
• Balance sheet
– By Brand
Synergy Target by
Function and Project
Synergy Tracking by
Function and Project
Synergy Tracking by
Team and Project
Master Meeting Schedule
Team Contacts
Master Repository
• By Function
• By Topic
• By Any Criteria
• Organizational Structure
• All Documents
Master Data List
Team Update
More…
Source: Booz • Allen & Hamilton
We judge the quality of our
work just as our clients do — by
the results. Their confidence in
our abilities is reflected in the
fact that more than 85 percent of
the work we do is for clients we
have served before. Since our
founding in 1914, we have
always considered client satisfaction
our most important measure
of success.
Consistent with our
position as a business thought
leader, Booz •Allen sponsors
strategy+business, a quarterly
magazine containing the best
ideas in business. Visit the
Booz •Allen Web site at
www.boozallen.com or the
strategy+business Web site at
www.strategy-business.com.
For more information about
achieving excellence in merger
integration, please contact any
member of the Booz·Allen team:
16

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